In this article, we will talk about validating the planogram strategy executed by the sales team and finding quantifiable results on the performance of the shelf space.
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If you are looking to study various strategies for making a perfect planogram, check the previous article in the Link. The current article will discuss store compliance health, financial effects, and inventory optimization once the planogram is set as per strategy.
Before we delve into hard metrics, the objective of Planogram engineering is to improve consumer experience, store profitability, future growth prospects and high return on investments.
Parameters to check the success of your shelf planning or Planogram design:
Shelf compliance or Exact Planogram
Sales Uplift or Delta
Sales per square feet (If you love the metric system, it is Sales/Meter2)
Conversion Rate
Inventory turnover
Customer dwell time
Basket size
Customer satisfaction
ROI on planogram
Let’s dive into each of these metrics:
Shelf compliance or Exact Planogram
This metric is the most important as it measures how much in percentage terms you are following the planogram strategy with respect to the one finalized. It is simply comparing the ideal planogram vis-à-vis the current store planogram.
Four questions to consider when checking shelf compliance:
How many products at the SKU level are available?
How many products are kept on the correct shelf?
How many products are kept in the right quantity?
How many products are kept in the right sequence?
Sales Uplift or Delta
This parameter compares the sales before and after implementing the planogram strategy. It shows how much the delta is from each self in Rupees or Value terms.
Ideally, your shelves’ sales should increase. But, if you are seeing a drop in sales, then you seriously need to rethink your planogram strategy. There has to be something significantly wrong with the new strategy.
For example, if before implementing the planogram, a shelf was doing 100K sales a month and after it is doing 120K sales a month with the same items, then your Delta is 20%.
Sales per square feet or Sales/Meter2
This metric will help you to analyze the effectiveness of your carpet area. How much money you are driving across the store?
By drilling each area, you can gauge which part of the store is earning you how much money. This analysis will help you to find out weak spots across the floor and improve your space optimally. Sales/Meter2 helps you to identify areas where more diagnosis is needed.
For example, If most areas of your store are doing good except for the refrigeration area, then you may do some analysis on the placement of your products, their sequencing, product type, product margin, shelf life, etc.
Conversion Rate
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It measures the percentage of consumers who buy the product once they are in front of the shelf. E.g. if out of 100 consumers browse the shelf, 5 of them make a purchase, then your conversion rate is 5%.
For example, you have 1 Lt. Fortune Sunflower oil and 2 L Fortune Sunflower oil, and 1 Lt. SKU has a 6% conversion rate and 2 L has a 2% conversion rate. In this case, if you have allotted the same space for both, then you have to reconsider how much shelf-estate you want to offer to each of the SKUs.
Studying conversion rates at product level helps you to optimize the self-space allocation and will ensure correct inventory volume you need to invest in.
Inventory turnover
Also known as out-of-stock (OOS) instances. It simply tells you which SKU keeps getting depleted and to be refilled again.
Inventory turnover is the end game of conversion rate and shows that the planogram structure is fruitful.
One caveat in OOS analysis is to factor in the promotional offers before giving a verdict. If a product is on promotion, it is quite natural that the off-take will be faster.
You may have to reconsider putting more effort into inventory refill if either the promotion is sponsored by the manufacturer or you are making decent money even after the promotion. Lossy Promotions as a long-term strategy to enable faster stock depletion is a disaster in the making.
Customer dwell time
Customer Dwell time is the average number of minutes a customer stares at your well-structured planogram-compliant shelf. The more time a customer stands in awe while looking at the shelf, it is more likely that they will make a purchase.
The conversion rate is usually correlated to the customer dwell time.
For example, by installing an LED or a digital screen or some cool anime (relevant to the product of course), you find the average time spent checking the shelf has increased which also results in customers buying more from that shelf.
Basket Size
It is the sum total of the items purchased. For example, before planogram implementation, an average customer used to buy 5 items and after implementation, they bought 7 items. This stat shows that your basket size improved.
Basket size is the result of multiple efforts you put into arranging the product logically, keeping complementary products nearby and investing in strategies that increase the cross-selling of the products. You need to analyse the products bought together and hence recalibrate your existing planogram.
For example, an article in Forbes around 1998 published a Diaper-Beer syndrome, which claimed that fathers were making a lot of late-night diaper runs at the stores that bought Beers along with diapers. So, Diaper and Beer become complementary products.
Customer Satisfaction
This metric gauges how easy it becomes for a new customer to explore your supermarkets. It is about the overall experience of your customers in your store.
For example, if after the implementation of a new planogram structure, the overall satisfaction of your customer increased by 20%.
There are multiple metrics available to gauge customer satisfaction such as NPS (Net promoter score), CSAT (Customer satisfaction score), CES (Customer effort score), etc.
10. ROI on planogram
It’s the return on investment done for planogram engineering & implementation.
It includes the expenses like the cost of consultancy, staff training, software for tracking as well as any additional infrastructural cost incurred to facilitate the planogram design.
One easy way to offset the cost of planogram design is to charge good money from product manufacturers to put their products on display. It is known as the display fee
A "display fee" in a DMart store is typically referred to as a "slotting fee," and the amount varies depending on the product, brand, and shelf space required, but generally, brands pay a percentage of their sales to DMart to secure prominent shelf space in the store.
Case Study: Coca-Cola’s Planogram Success
Coca-Cola implemented a targeted planogram strategy in collaboration with Walmart to optimize its beverage aisles. Using market research, they placed high-margin products at eye level and grouped complementary products, such as snacks and soda, nearby.
Results:
Sales Uplift: Coca-Cola’s sales grew by 18% in these stores.
Basket Size: Cross-selling efforts led to a 25% increase in bundled purchases.
Compliance Rate: Using shelf-monitoring software, compliance rates improved from 80% to 95%.
ROI: The initiative generated a 300% ROI within the first six months, making it a widely cited success story in planogram implementation.
This case demonstrates the power of data-driven planogram strategies combined with consistent monitoring and compliance efforts.
With the drastic improvement in image processing using AI, it will be more and more easier to maintain and measure the effectiveness of Planogram. Someday in the very near future, robots may do all the planogramic chores for your store.
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